High Commission of India, Colombo

Following the success of FTA, the Governments of India and Sri Lanka felt that more action was required to unleash the full potential of our bilateral economic relations. Accordingly, during the visit of Prime Minister of Sri Lanka to India in June 2002, the two governments decided to set up a Joint Study Group to explore possibilities of starting negotiations for a CEPA, modelled on the India-Singapore CECA.

Based on the report of the JSG in October 2003, the two countries began negotiations on a CEPA in early 2005. Thirteen rounds of negotiations have been completed, the last round having been held in Colombo on July 8, 2008.

Following the last technical level meeting, the Commerce Secretaries of the two countries met on July 9, 2008 to finalise the remaining issues and announce that CEPA negotiations have been completed, and the text has been agreed.

CEPA is expected to build on the momentum generated by the FTA. It will address some of the issues that have come up in the implementation and operation of the FTA as well. It will also take the two economies beyond trade in goods and impart renewed impetus and synergy to bilateral economic interaction.

Like the FTA, CEPA proceeds on a principal of asymmetric obligations in keeping with the size of the two economies. Therefore, Sri Lanka receives more concessions than it has to concede to India. This aspect is evident from the following:

In the goods sector, India would reduce its negative lists by another 114 items while Sri Lanka would be reducing only 32 items. This is despite the fact that under FTA Sri Lanka was allowed to have a larger negative list (1180 tariff lines) than India (429 tariff lines).
India has also offered additional concessions on garment quota of 8 million pieces that was granted under the FTA. Besides the 3 million pieces granted at zero duty earlier, India has agreed to allow another 3 million pieces more at zero duty and remaining 2 million at 75% margin of preference. Port entry restrictions and conditions of sourcing fabrics from India have also been removed.
In the services sector, too, India has agreed to larger and deeper openings than Sri Lanka. India will open far more sectors upfront (about 80 sub-sectors) and grant deeper concessions in each of these areas. In return, Sri Lanka has been allowed to have a more gradual approach, open only selected areas (about 20 sub-sectors), and to restrict openings in these sectors to levels it is comfortable with.
Openings on various modes of supply, including Mode 4 that pertains to movement of natural persons is much more limited in Sri Lanka’s schedule of commitments than India’s. India will allow unlimited number of visas to executives, managers and specialists to work in India. Sri Lanka has not reciprocated and allowed restricted concessions in this regard. Only in two sectors, Computer and related services and maritime services, where Sri Lanka has shortages, Indians will be able to work in Sri Lanka and this concession too is linked to investments by India and limited to a small percentage of jobs involving high-level of skills. The fear of influx of Indian professionals into Sri Lanka as a result of CEPA, therefore, is unfounded.
The services sectors opened by India include some of the areas where Sri Lanka has proven expertise and acknowledged advantages. These include: architectural and engineering services, tourism and travel related services, computer and IT and related services, transport, and maritime services.
In the area of investments, too, India’s schedule of commitment would be much larger than that of Sri Lanka.
Concessions granted by India are unconditional and not time-barred unlike GSP+ concessions that are temporary, subject to periodic review and come with prescriptive non-trade considerations.
Beyond sectoral concessions, an opening by India is by itself a larger concessions owing to larger size of its markets.

Apart from direct benefits, CEPA also aims at creating a more facilitating environment for Sri Lankan exports and seeks to remove perceived impediments to exports from Sri Lanka. These were all based on Sri Lankan demands and Indian side has agreed to all such requests recognizing the true spirit of free trade between India and Sri Lanka. These include:

a provision to identify and root out all non-tariff barriers;
Sri Lankan exporters have been complaining about Indian Customs. CEPA provides for a close cooperation mechanism between the Customs Authorities; for transparency of laws, rules and regulations through prompt publication, adoption of risk management techniques to allow expeditious clearance to low risk consignments, adoption of paperless trading methods, adoption of advance ruling system etc. It also establishes direct points of contact on both sides for quick resolution of any possible problems.
Another problem faced by Sri Lankan exporters have been delays owing to testing and certification requirements for certain products in India. CEPA provides for a Mutual Recognition Agreement (MRA) as well as adoption of common Sanitary and Phyto-sanitary standards. As a result, delays due to lab testing and certification processes will be avoided allowing Sri Lankan exports to enter India unhindered. Testing and certifications done in Sri Lanka would be recognized in India. The products that will benefit include: ayurvedic products, fish and fishery products, coffee, tea and spices, edible fruits and nuts, vegetable fats and oils, all kinds of animal and animal products, plant and products of plant origin, and other agricultural and related items.
Some exporters in Sri Lanka felt that the FTA rules of origin criteria were far too stringent in respect of certain commodities leading to effective denial of export possibility. At Sri Lanka’s request, India has agreed to ease rules of origin criteria for 346 products. This will enable Sri Lanka to export these items of priority interest and also to be more competitive in the Indian market. Some of the products included are apparel items, jewellery, furniture, machineries, electrical and other appliances, agricultural and agro-processed items, fishery products, non-ferrous metals, and so on.
In order to ensure that problems in bilateral trade receive priority attention and are resolved promptly, a Standing Committee at the level of Commerce Secretaries has been set up. It will meet every six months to address all outstanding issues and concerns and resolve them promptly. Besides, the Commerce Ministers will meet annually to deal with unresolved issues ensuring that all concerns are addressed at a very high level and on a regular basis.
CEPA also provides for redressal through non-governmental means by providing for dispute resolution mechanism;
CEPA also envisages economic cooperation in a wide range of areas selected by Sri Lanka alone. These include: Energy; Manufacturing; Services; Transport and infrastructure; Science and technology; Human resource development; and SMEs. This would help in creating capacities and developing human resource potential in Sri Lanka to better leverage the new openings envisaged in CEPA.

Another aspect of CEPA that is often ignored is the impetus factor, especially in the light of current downturn. FTA began to be implemented in 2000 and the bilateral trade within five years up to 2005 expanded 4 times. Exports from Sri Lanka expanded even faster increasing by about ten times. It can be expected that CEPA can provide a similar impetus that will help redress the recent downturn in trade during 2008 and 2009. Sri Lankan exports have declined by 25% in 2008 from 2007 figures. In the first six months of 2009, this downturn has been even more pronounced, with Sri Lankan exports falling by close to 44% and Indian exports falling by about 47% over the corresponding period in 2008. CEPA can provide that impetus that is badly needed by generating a signal at governmental level for stronger engagement between the two countries.

****